Site Due Diligence & Development Team Assembly

Chapter 2: Site Due Diligence & Development Team Assembly

This chapter delves into the critical initial phases of real estate development: thorough site due diligence and the strategic assembly of a capable development team. These steps are foundational for project success, mitigating risks and ensuring efficient execution.

2.1 Site Due Diligence: Unveiling Potential and Pitfalls

Site due diligence is a comprehensive investigation of a potential development site, aiming to identify its strengths, weaknesses, opportunities, and threats (SWOT). This process involves assessing various factors, employing scientific principles and practical analyses.

2.1.1 Environmental Assessment

A. Riparian and Wetland Conditions:

• Importance: Preserving riparian zones (areas bordering water bodies) and wetlands is crucial for maintaining ecological balance, water quality, and flood control. Disturbing these areas can lead to significant regulatory hurdles and environmental damage.

• Scientific Basis: The hydrological cycle governs water movement and distribution. Wetlands, acting as natural sponges, absorb excess rainfall, reducing flood peaks downstream. Riparian vegetation stabilizes stream banks, preventing erosion and sedimentation. The presence of specific plant and animal species indicates the health and type of wetland.

• Practical Application: Conduct a Phase I Environmental Site Assessment (ESA), which involves reviewing historical records, aerial photographs, and conducting a site reconnaissance to identify potential environmental concerns, including the presence of wetlands or riparian zones. If Phase I indicates a likelihood of contamination or the presence of protected areas, proceed to Phase II, involving soil and water sampling and analysis.

B. Drainage and Flooding Potential:

• Importance: Understanding drainage patterns and flood risks is paramount for site safety and preventing property damage. Inadequate drainage can lead to water accumulation, structural instability, and health hazards.

• Scientific Basis:

  • Hydraulic principles govern water flow. The Manning equation (Equation 2.1) is commonly used to calculate flow velocity (V) in open channels, considering channel roughness❓❓ (n), hydraulic radius (Rh), and slope (S):

    • V = (1/n) * Rh^(2/3) * S^(1/2) (Equation 2.1)
      • Hydrologic models simulate rainfall-runoff processes to predict flood magnitudes and frequencies. Rational method (Equation 2.2) estimates peak discharge (Qp) based on rainfall intensity (i), drainage area (A), and runoff coefficient (C):
    • Qp = C * i * A (Equation 2.2)

• Practical Application: Obtain Flood Insurance Rate Maps (FIRMs) from FEMA (Federal Emergency Management Agency) to determine if the site is located within a designated flood zone. Engage a civil engineer to conduct a drainage study, analyze topographic data, and model stormwater runoff. Consider installing retention or detention ponds to mitigate flood risks.

C. Soil Conditions:

• Importance: Soil properties significantly impact foundation stability, drainage, and construction❓ costs. Poor soil conditions can lead to settlement, landslides, and increased construction complexities.

• Scientific Basis:

  • Soil mechanics principles govern soil behavior under load. The bearing capacity of soil (qult) represents the maximum load it can withstand without failure. Terzaghi’s bearing capacity equation (Equation 2.3) estimates qult based on soil cohesion (c), angle of internal friction (φ), soil unit weight (γ), and foundation dimensions (B, L, Df):

    • qult = cNc + γDfNq + 0.5γBNγ (Equation 2.3)

    • Where Nc, Nq, and Nγ are dimensionless bearing capacity factors dependent on the angle of internal friction (φ).

      • Soil composition affects drainage and permeability. Darcy’s Law (Equation 2.4) describes the flow of water through porous media, relating flow rate (Q) to hydraulic conductivity (K), cross-sectional area (A), hydraulic gradient (i), and length (L):
    • Q = -K * A * i (Equation 2.4)

• Practical Application: Conduct a geotechnical investigation involving soil borings and laboratory testing to determine soil properties, including bearing capacity, permeability, and compaction characteristics. If necessary, implement soil improvement techniques such as compaction, soil stabilization, or deep foundations.

2.1.2 Practical Experiments

• Soil Permeability Test: Dig a small pit and fill it with water. Measure the time it takes for the water to infiltrate into the soil. This provides a rough estimate of the soil’s permeability. Compare results from different locations on the site.
• Slope Stability Assessment: Observe the natural slopes on the site. Look for signs of instability such as cracks, slumps, or erosion. Document the angle of the slopes. This provides a rough estimation of the slope stability.

2.2 Development Team Assembly: Building a Collaborative Force

Assembling a high-performing development team is crucial for navigating the complexities of real estate projects. Each team member brings specialized expertise, contributing to informed decision-making and efficient execution.

2.2.1 Key Team Members: Roles and Responsibilities

A. Architect:

• Role: Leads the design process, translating the developer❓’s vision into detailed plans and specifications.
• Responsibilities: Site planning, building design, elevations, unit plans, construction drawings, and coordination of design consultants.
• Scientific Principles: Applies principles of structural engineering, building physics (heat transfer, acoustics, lighting), and environmental design to create functional, aesthetically pleasing, and sustainable buildings.

B. Engineers:

1.  Mechanical Engineer:
    *   Role: Designs the plumbing, heating, ventilation, and air conditioning (HVAC) systems.
    *   Responsibilities: System selection, load calculations, ductwork design, and energy efficiency analysis.
    *   Scientific Principles: Applies thermodynamics, fluid mechanics, and heat transfer principles to ensure efficient and reliable system operation.
2.  Structural Engineer:
    *   Role: Designs the structural framework of the building, ensuring its stability and safety.
    *   Responsibilities: Foundation design, framing design, load calculations, and compliance with building codes.
    *   Scientific Principles: Applies principles of statics, mechanics of materials, and structural analysis to ensure structural integrity under various loads (e.g., gravity, wind, seismic).
3.  Electrical Engineer:
    *   Role: Designs the electrical systems, including power distribution, lighting, and communication networks.
    *   Responsibilities: System design, load calculations, wiring diagrams, and compliance with electrical codes.
    *   Scientific Principles: Applies principles of circuit theory, electromagnetism, and power systems to ensure safe and reliable electrical supply.
4.  Civil Engineer:
    *   Role: Designs the site infrastructure, including grading, drainage, parking lots, and utilities.
    *   Responsibilities: Site grading plans, drainage design, stormwater management, and compliance with zoning regulations.
    *   Scientific Principles: Applies principles of hydraulics, hydrology, and geotechnical engineering to design sustainable and functional site infrastructure.

C. General Contractor:

• Role: Oversees the construction process, translating the architectural and engineering plans into a physical structure.
• Responsibilities: Project scheduling, budget management, subcontractor management, and quality control.
• Scientific Principles: Applies principles of construction management, materials science, and structural mechanics to ensure efficient and safe construction practices.

D. Construction Team:

1.  Project Manager: Responsible for project budgeting and subcontractor selections.
2.  Superintendent: Manages day-to-day operations of the subcontracting trades.

E. Title Company:

• Role: Holds money in escrow. Provides title reports and insurance.

F. Property Management Company:

• Role: Prepares market analysis❓ and determines rents the property can reasonably charge.

G. Financing Partner:

• Role: Provides money for the project through bank loans, commercial loans, or private lenders.

2.2.2 Construction Contracts: Defining Scope and Compensation

A. Lump Sum or Fixed Price Contract:

• Description: The contractor agrees to provide specific services for a fixed price.
• Advantages: Clear cost certainty for The developer❓.
• Disadvantages: Contractor assumes all cost risks; potential for inflated bids.

B. Cost Plus a Fixed Fee Contract:

• Description: The developer pays the contractor the actual costs of construction plus a fee.
• Advantages: Transparency in cost accounting; potential for cost savings.
• Disadvantages: Requires careful cost monitoring; developer assumes cost risks.

C. Guaranteed Maximum Price (GMP) Contract:

• Description: Similar to Cost Plus, but with a guaranteed maximum price.
• Advantages: Cost certainty up to the GMP; potential for sharing cost savings.
• Disadvantages: Requires detailed cost tracking; contractor retains some cost risks.

2.2.3 Financing the Development: Securing Capital

Obtaining financing is a critical step in the development process. Lenders will review the following items:

• Executive Summary: Financial summary of the project.
• Property Overview: Description of the site.
• Market Overview: Analysis of the local market.
• Financial Pro Forma: Projected income and expenses.
• Developer Résumé: History of the developers previous projects.
• Development Team Résumés: Highlight the credentials of the architect, engineers, and property managers.

Short-term loans can be taken in the form of construction loans. After construction is completed, developers need to obtain a permanent loan.